Waiting for the crackdown: DOL retirement plan enforcement to increase

By , benefitspro.com

March 23, 2012 •

As coyly alluded to early this week by Michael Davis, deputy assistant secretary for EBSA, who spoke at ASPPA’s 401(k) Summit, the recent storm of regulatory enhancements in the DOL’s scope of vision also means that more enforcement is invariably on the horizon.

From the fine-grained details of the fee disclosure circus to the ever-evolving spotlight of fiduciary responsibility, plan sponsors and advisors will need to be exceptionally careful in the days to come.

A recent column by attorney Jeff Mamorsky ought to put the fear of God into everyone who has even the vaguest potential of being a fiduciary, which is even more impactful as many advisors may be completely unaware that the Department of Labor weilds enforcement power over them.

Consider, however, that EBSA’s enforcement efforts last year resulted in nearly 3,500 civil cases and $1.39 billion in penalties, plus more than 300 criminal cases with 129 indictments and 75 guilty pleas or convictions. The scrutiny is real, and the DOL is even adding almost 100 staff to redouble its enforcement efforts.

With that in mind, it’s more important than ever to know the current rules, and concentrate on meeting the letter of the law when EBSA revises its fiduciary standards and statures in May.

This is expected to modernize the long-standing five part test you know so well, partially because the 1975-era rules were little too all-or-nothing for full application, as well as being somewhat out of touch with a market now rife with DC plans and light on pension systems. At present, fiduciary status requires that:

1. Advice is given on the value of investments or on purchasing or selling investments.

2. This advice is rendered on a regular basis.

3. There is a mutual understanding or agreement.

4. That the advice will serve as the primary basis for plan investment decisions and,

5. The advice is individualized on the needs of the plan. 

Come May, the standards become a little more liberal. A person can be deemed to provide investment advice if there’s any understanding that the advice could have been considered for purposes of plan investment decisions – even if that’s a one-time piece of advice.

Advisors will also have to acknowledge their fiduciary status for the purposes of providing advice, as their liability will no longer disappear just because they don’t meet all five parts of the test. And advisors will have to acknowledge their inclusion broader reaches of the Investment Advisers Act of 1940.

Finally, it also requires that an advisor provides advice and opinions on the value of investments, recommendations on buying or selling assets or the management of securities.

Plan advisors, as a result, are very much in the spotlight as those standards now broaden the reach considerably.

Plan sponsors are also figuring out that the very heavy level of complexity and the multiple opportunities to be even accidentally placed in a fiduciary status means they need to figure out ways to legally dodge the fiduciary bullet, ASAP. If they can find or designate an ERISA expert, it’s a way of shifting the responsibility.

May is coming up soon. As we learned in many different portions of the Summit, it’s a good time to be paying some very close attention, as the DOL will certainly be doing much scrutinizing of its own.